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Abu Dhabi Global Market (ADGM) has become the preferred destination for MNCs to set up a Regional Treasury Office
Global organisations and multinational corporations (MNCs) are faced with numerous obstacles while managing operations across their subsidiaries. More specifically, complex regulatory frameworks in varying markets have made it difficult for corporates to comply and maximise their profits. Within a highly distributed market, companies are constantly leveraging technology and regulations to increase their competitive advantage, reduce inefficiencies, and optimise processes across the board. This issue had become acute during the height of the COVID-19 pandemic, which halted global supply chains and restricted the movement of capital.
Investing in a Regional Treasury Centre (RTC) would give MNCs easier control of their financial and business operations globally. In simple terms, an RTC is a financial structure through which MNCs are able to centralise their treasury activities within a specific market in order to better connect to their clients, banking partners, and employees. The keyword here is to ‘centralise’, and the reason being is that it allows MNCs to enjoy a wide array of incentives and benefits in addition to providing treasurers with better visibility to make more informed and faster decisions.
An MNC chooses the location of its RTC after considering a series of strategic decisions involving the size and scope of operations within that market, the legal entities in that particular region, the need to improve governance and control over operating subsidiaries, and the centralisation of liquidity (cash pooling) in addition to funding for subsidiaries. With that in mind, establishing an RTC means that an MNC could manage risk exposure centrally and hedge multiple currencies (similar to the case in the GCC) in a standardised way. Ultimately, the fewer number of accounts and transactions needed, the more efficient the working capital becomes – centralising liquidity would not only save time, but also more money.
However, deciding on the location of a Regional Treasury Centre heavily depends on where an MNC operates geographically, but is far from being the only determining factor.
What makes a strategic RTC destination?
In recent years, the emirate of Abu Dhabi has been transforming its economy to attract MNCs and support home-grown startups within a holistic and business-friendly environment. Abu Dhabi Global Market (ADGM), the international financial centre, has laid the regulatory and financial groundwork needed to encourage innovation and business ventures.
Several companies have already decided to set up an RTC in Abu Dhabi due to its proximity to global markets, in addition to other financial incentives. Some of the factors that make Abu Dhabi one of the world’s most attractive destinations to establish an RTC are:
- Tax regulations and frameworks: RTCs at ADGM enjoy a 0% corporate tax regime, where the government has not levied any capital taxes, stamp duty, withholding tax, wealth, or employment taxes.
- Law and governance: ADGM has developed a series of robust and transparent regulatory frameworks that apply English common law – offering a familiar and internationally compliant legal consistency. Technically, an RTC at ADGM could be established as a branch or a company, which allows it to take the role of payment factory, in-house bank, netting, or reinvoicing centre.
- Capital movement:third in the Middle East on Long Finance's Global Financial Centres Index, in addition, ADGM hosts the UAE offices of the World Bank and the Organisation for Economic Cooperation and Development, plus those of 49 operating banks, together with active bond and equity markets.
- IT infrastructure and technology: With 5G network becoming more accessible in the emirate, more MNCs are realising the opportunity that zero-latency communication technology brings to various industry verticals. Abu Dhabi is already prepared for the real-time economy where new business models need to be accommodated for, cross-industry partnerships become streamlined, and cybersecurity infrastructure is already in place.
- Talent pool: While a 0% income tax has long attracted talent to the UAE in recent years, professionals from all verticals have come to Abu Dhabi to enjoy the thriving tech, finance, and innovation scene. More specifically, Abu Dhabi’s lifestyle and cosmopolitan nature have made it the destination for professionals young and old to fulfill their long-term career aspirations in a safe, sustainable, and multicultural environment. According to The Global Talent Competitiveness Index published in 2020, the UAE topped the Arab Region and ranked 22nd worldwide, thanks to its well-trained workforce and relaxed labour policies.
- Political and economic stability: Building on its wealth from the hydrocarbon industry, the UAE has long pegged its dirham to the United States dollar, which assures MNCs that there would be a minimal impact in the case of a global economic crisis. In addition, the UAE has long spearheaded peacemaking efforts regionally, which was exemplified most recently with the signing of the Abraham accord.
- Geographic location: With 60% of global GDP within a 7-hour flight, Abu Dhabi is central to the world’s growth, is a major transportation and logistics hub, and has long standing political and economic relationships with the leading economies across the world.
- Legal flexibility: ADGM’s progressive regulatory and legal infrastructure also offers MNCs the choice to establish either a Global Treasury Centre, a Regional Treasury Centre, or even a Decentralised Treasury.
While this list does offer an overview of why an MNC might select Abu Dhabi as the ideal destination for its next RTC, it does not mention the emirate’s ongoing digitisation strategy, high-tech transport sector, and already established corporate premises at ADGM.
Not long ago, Siemens opened an RTC in Abu Dhabi to serve its subsidiaries in the Middle East and to be closer to its customer base. For Siemens, the Middle East is an area of strategic focus and they continue to invest in the region and to strengthen their capabilities to better serve their customers. By opening a Regional Treasury Centre in ADGM, they are reinforcing their internal resources on the ground, enabling them to react more swiftly to regional requirements.
In joining ADGM, Siemens can capitalise on the UAE’s central geographical location as well as many other factors, such as operating out of Abu Dhabi under the rules of ADGM as a regulator. “ADGM is a very flexible and professional partner for our type of business, which is crucial for us since we have to provide these services for our partners from a reliable working space with reliable infrastructure and supportive legal system,” says Dr. Marcos Boskamp Alexandre, Managing Director at Siemens.
Fortunately for Siemens Capital Middle East, the organisation has been able to maneuver through the current pandemic with little negative impact. Due to ADGM’s infrastructure and the high degree of digitalisation inherent to its offices before the pandemic hit, it was much easier to adjust to home office work.
While preparation was key in managing the coronavirus pandemic, the restrictions involved in social distancing and safeguarding teams were still a significant challenge for Siemens Capital Middle East Ltd., although doing so was made much easier thanks to the support of ADGM. “ADGM protected our team and secured the health of our people,” says Boskamp. “Thanks to flexibility and infrastructure support, we have been able to continue our work seamlessly under these restrictions, even during pandemic times.”
In conclusion, ADGM has developed a holistic ecosystem that invites MNCs to establish their Regional Treasury Offices, while mitigating traditional operational risk and streamlining all their financial processes. For corporates recovering from the direct impact of COVID-19 on their operations, ADGM offers an unprecedented opportunity for exponential business growth and agile financial operations.
21 February 2021, by ADGM's Staff Editor
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